- how DEEP arrived at its estimate for the cost to customers for switching from oil to natural gas and whether this estimate appears to be reasonable;
- how realistic is the draft strategy's projection of a 53% growth in the number of gas customers in the seven years it covers;
- how much interstate pipeline delivery capacity Connecticut has and whether this capacity is sufficient to deliver gas to the new customers anticipated by the draft strategy, even with increased compression on existing pipelines; and
- what is the position of the gas companies on these issues.
As part of the draft strategy, mandated by PA 11-80, DEEP proposes a number of measures to encourage customers to switch from heating oil to gas. DEEP makes these proposals, in part, due to the fact that gas is currently less expensive than oil and DEEP's belief that this difference will
likely continue. Among the specific proposals are (1) establishing a financing mechanism to help residential and business customers pay for replacement heating equipment such as furnaces and (2) expanding gas distribution mains.
likely continue. Among the specific proposals are (1) establishing a financing mechanism to help residential and business customers pay for replacement heating equipment such as furnaces and (2) expanding gas distribution mains.
The draft strategy provides estimates for the following costs associated with fuel switching: (1) replacement heating equipment, (2) service lines and meters for those customers who do not already use gas for such things as cooking, and (3) distribution mains. Under existing Public Utilities Regulatory Authority (PURA) policy, all customers (existing and new) pay for gas meters and, in most cases, for service lines. The allocation of costs for new distribution mains between new and existing customers depends on their projected revenues.
According to the draft strategy, the average cost for heating equipment would be $7,500 for residential customers, $20,300 for commercial customers, and $40,600 for industrial customers. DEEP derived these estimates from a study conducted by the Department of Economic and Community Development (DECD) that was sponsored by the gas companies (Connecticut Natural Gas, Southern Connecticut Gas, and Yankee Gas Services). The residential cost estimates are consistent with data provided by a small survey of heating equipment contractors conducted by DEEP.
There does not appear to be a significant debate regarding the cost estimates for the service lines, meters, and distribution lines. But a number of individuals and entities have challenged DEEP's costs estimates for the heating equipment.
The heating equipment cost estimates appear to be reasonable, but they are averages. The actual costs for individual customers could vary substantially, based on such things as the size of the building to be served and the equipment's energy efficiency. In addition, the draft strategy does not address a number of incidental costs of fuel switching that might be allocated to individual customers.
DEEP estimates that its proposals would increase the number of gas customers by 53% over seven years. The number of customers switching from oil to gas has increased substantially in recent years, but the number of conversions per year would need to more than double to achieve this growth. Some of the factors that could affect the pace of fuel switching are in the hands of state policy-makers, such as the attractiveness of financing offered to customers who switch. Other factors are not. These include the relative prices of oil and gas and whether the interstate pipeline system is expanded to serve new customers in the state.
The three interstate pipelines that currently serve Connecticut can deliver about one million dekatherms (a dekatherm is about 1,000 cubic feet of gas) per day. This is sufficient to serve all firm (residential and other non-interruptible) current customers, as well as interruptible customers most of the time. The gas companies believe that the current system, together with planned capacity expansions of the existing pipelines, could meet the demands of the current pace of conversions. However, the draft strategy notes that substantially expanding gas use in the state would require expanding pipeline capacity by building new pipelines as well as by increasing capacity on existing pipelines by additional compression.
The three gas companies filed joint comments on the draft strategy in December 2012. They supported the proposals in the draft, addressed questions raised during the public sessions, and provided technical comments on DEEP's analysis. The companies believe that the draft strategy somewhat overstated the number of low-use gas customers (those who just use gas for cooking or water heating) who would likely convert to gas space heating. On the other hand, the companies believe that the draft strategy underestimates the value of fuel switching for commercial and industrial customers. While the companies agree that a substantial expansion in the number of gas customers would require new pipelines, they believe they can continue to add customers before these pipelines are built.
For more information, read the full report.
